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How can I ensure that where I am investing my money is legitimate?

I recently invested $100,000 through a good friend. I did a lot of research, but after three months I am earning a lot of money and it sounds too good to be true. What can I do to ensure the legitimacy of this investment? I can take my money out now if I need to, but I prefer to keep investing.

Investing, Alternative Investments
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April 2018

If there ever was an Investopedia question that I wished came with more information, this is it.  It sounds like you are making too much money and that worries you.  (I'd love to know more about this.  Contact me if you would like.)

The old adage is that "if it seems too good to be true, it probably is."  There are a few possibilities here: (1) the investment is a pyramid or Ponzi scheme, where you are benefiting from the money added by investors who are coming to it later, but all of you will be wiped out one day (remember Madoff?); (2) the investment is legitimate but extremely highly leveraged -- that is, your friend has borrowed heavily and as long as the returns are higher than the borrowing costs you come out OK, but can be wiped out by a small loss (or his inability to have continued access to borrowed funds); (3) he has invested in risky ventures and so far, so good -- but if high return means high risk it could lead to big (or total) losses; or (4) your friend is a genius and he has found the secret to wealth that we are all looking for.

Which do you think it is?

My advice, without knowing more than I do, is that you should take some of your money out, only leaving what you can afford to lose.  Risky investments are not always a bad thing as long as you understand the risks.  Keep in mind that you would like to keep your friendship even if the investment goes sour.

April 2018
April 2018